Corporate governance and dividend policy : evidence from JSE-listed companies in South Africa

Abstract

ABSTRACT This study assessed the effect of corporate governance on dividend payout decisions of South African publicly listed companies. The study aimed at assessing whether corporate governance mechanisms, particularly board structure (size, independence and gender composition), CEO’s duality and institutional ownership predict dividend. The context of this study is the importance of corporate governance mechanisms to alleviate the agency conflict that emerges because of the separation of the owners (shareholders) from the managers (agents). Panel data covering the period of 2008 – 2012 was collected from the annual financial statements of 40 companies on the Johannesburg Stock Exchange (JSE), ranked as top in 2012. The standardised financial information to measure the dependent and control variables was consolidated from the McGregor BFA database. Data analysis, including descriptive, correlation and panel regression was performed using SPSS and R statistical software. The results of the study show that strong evidence exists to suggest a positive association between gender diversification and dividend payout decisions of South African publicly listed companies. This finding endorses the understanding that the presence of women on the board reduces agency cost. The finding also revealed that board size has a significant effect on dividend decisions in JSE-listed companies. Companies with smaller board size showed a strong governance structure to push for higher dividend pays. The other corporate governance variables, such as institutional ownership, independent non-executive composition on board and CEO’s duality exhibited insignificant effects on payout. Therefore, the variation on dividend is not explained by any change in those variables. The result also documented that control variables such as profitability, growth, firm size, firm risk and leverage showed a significant effect and influenced dividend pay. Key words: Corporate governance, Agency theory, Dividend payout, Board structure